Bootstrap Tests for Structural Breaks When the Regressors and Error Term are Nonstationary
This paper considers tests for structural breaks in linear models when the regressors and the serially dependent error process are unstable. The set of models contains various economic circumstances such as the structural breaks in the regressors and/or the error variance, and a linear trend model with I(0)/I(1) error. We show that the existing heteroscedasticity robust tests and the fixed regressor bootstrap method of Hansen (2000) have severe size distortion problem even in the asymptotics. We suggest a method which combines the fixed regressor bootstrap and the sieve-wild bootstrap method to nonparametrically approximate the serially dependent unstable error process. The suggested method is shown to asymptotically replicates the true distribution of the existing tests under various circumstances. Monte Carlo experiments show significant improvements both in the size and the power properties. Once the size is controlled by the bootstrap, Wald type tests have better power properties relative to LM type tests.
|Date of creation:||Mar 2011|
|Date of revision:|
|Contact details of provider:|| Postal: University of Connecticut 365 Fairfield Way, Unit 1063 Storrs, CT 06269-1063|
Phone: (860) 486-4889
Fax: (860) 486-4463
Web page: http://www.econ.uconn.edu/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bruce E. Hansen, 1998.
"Testing for Structural Change in Conditional Models,"
Boston College Working Papers in Economics
310., Boston College Department of Economics.
- Hansen, Bruce E., 2000. "Testing for structural change in conditional models," Journal of Econometrics, Elsevier, vol. 97(1), pages 93-115, July.
- Vogelsang, Timothy J., 1998. "Sources of nonmonotonic power when testing for a shift in mean of a dynamic time series," Journal of Econometrics, Elsevier, vol. 88(2), pages 283-299, November.
When requesting a correction, please mention this item's handle: RePEc:uct:uconnp:2011-05. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark McConnel)
If references are entirely missing, you can add them using this form.